In the financial world, Mergers and Acquisitions (M&Q) is a very major aspect. Basically, it is a general term referring to consolidation of companies or assets. Various types of transactions can be classified under M& A motion. When two companies combine to form another new company, it is known as merger.
On the other hand, an acquisition is the acquiring of a company by another company, which means no new company is formed in the process. Through M&A, companies evaluate various opportunities with the aim of maximizing wealth.
Other Transactions included in M&A
A number of different transactions can be a part of M&A, including:
- Mergers
- Acquisitions
- Consolidation
- Purchase of assets
- Tender offers
- Management acquisition.
There are two companies involved in all these cases. Generally, an acquiring company proposes and offers of purchasing another company in its entirety or buys some of its assets.
M&A for Students
Generally, Mergers and Acquisitions is a sub-topic that is included in subject of management. Students studying financing and other related subjects shall also come across this topic. It usually involves detailed explanation on the concept of selling, buying, combining and dividing of different companies of similar nature for achieving the best results in market. It involves company restructuring with the goal of providing positive results and growth.
For some students, it might seem to be a difficult topic. Such students would definitely some sort of help and online homework help services are there for just that.
When does M&A take place?
Mergers and Acquisitions may take place with:
- Purchase of assets
- Purchase of common shares
- Exchange of shares for shares
- Exchange of shares for shares
Reasons for M&A
- Economies of scale
- Financial synergy for lower capital cost
- Improving the performance of the company and accelerating growth
- Diversification for markets or products with higher growth
- Improving the positioning in market for gaining a broader market access
- Technological change
- Strategic realignment
- Tax considerations
- Diversification risk
- Undervalued market
Main Purpose
The unique principle of mergers and acquisitions is ‘one plus one makes three’. The main reason behind purchasing of a company is creation of a shareholder value that is above the sum of the two companies involved. So, the primary reasoning behind M&A is the fact that two separate companies are not as valuable as two companies together.
This logic is especially appealing to companies when things are not going in their favor. Strong companies shall act for buying other companies for creating a more cost efficient and competitive company. The companies do come together in the hope of achieving better efficiency or better market share. Considering potential benefits like these, the target companies are often seen to agree with mergers and acquisitions, knowing that it is difficult for them to survive alone.
Synergy
The merger or joining of two companies is always associated with a synergy value. Synergy refers to the concept that performance and value of two companies together will be greater than sum of the companies individually. Synergy value is aimed at increasing the revenues, lowering the expenses and lowering the overall capital cost. There are three considerations that need to be taken into account:
- For benefitting truly, the company must be ready to take risk and take the responsibility of making investment.
- Multiple bets should be made for reducing and diversifying risk.
- Management of acquiring firm needs to be patient, resilient and willing to adapt.
Failure of M&A
Mergers and acquisitions can be a failure due to:
- Poor strategic feet- Vast differences in strategies and objectives of company
- Excessive Optimism- Results in bad decisions.
- Poorly Managed Integration-Without proper design and planning, integration is often managed poorly, resulting in implementation failure
- Inadequate due diligence- Can result to failure of M&A as they are very decisive.
Problems Students Face With M&A
The very basic definition of the terms ‘merger’ and ‘acquisition’ will give you an idea that they are different from each other. While legal consolidation of two companies into one entity is known as merger, the process of a company taking over another company is called acquisition. The definition of mergers and acquisition might lead you to think that the topic is fairly easy, but that is not the actual case.
The topic of M&A is one with several types and sub-types, all of which students have to go through. There are even many legal formalities associated with the transactions, which make the matters worse. So, as a student, studying this topic all on your own can be difficult. You will definitely need some sort of external help.
Online homework assistance for mergers and acquisition might just be what you need. Not only this topic, you can avail professional help regarding any other topic, such as bond valuation. If you need help with calculation of bond valuation, you should definitely give ‘What is Bond Valuation and How to Calculate’ a read.